The U.S. utilities sector posted a solid comeback in the 12-month period ended Feb. 10, 2026, with the State Street Utilities Select Sector SPDR ETF (XLU) climbing about 14.5%. Long viewed as a slow-growth defensive corner of the market, utilities have regained investor attention amid structural shifts in power demand, supportive macro conditions and rising geopolitical uncertainty.
A key catalyst has been surging electricity consumption tied to artificial intelligence (AI) and data center expansion. AI-driven workloads are significantly lifting power usage, with projections pointing to a sharp rise in electricity demand through the end of the decade. Massive investments in data centers and cloud infrastructure have positioned utilities as critical enablers of the digital economy. Broader electrification trends, including manufacturing reshoring and the expansion of electric technologies, have further strengthened long-term demand visibility.
Macroeconomic factors also supported the rally. Expectations of interest rate cuts improved sentiment toward capital-intensive utilities, while their steady dividends attracted investors seeking stability in a volatile market. At the same time, increased spending on grid upgrades, renewables and nuclear partnerships has enhanced growth prospects.
Geopolitical tensions and energy security concerns have reinforced the importance of domestic infrastructure investment. Together, these forces have reshaped utilities into a sector offering both defensive resilience and structural growth.
In this environment, utility mutual funds provide much-needed stability and growth potential. Hence, astute investors should consider such funds at present. Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
We have thus selected three utility mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), have positive three-year and five-year annualized returns and minimum initial investments within $5000, and carry a low expense ratio.
American Century Utilities BULIX focuses on equity investments in companies within the utilities sector. Its advisors employ a blend of quantitative and qualitative strategies, along with risk management measures, to build and maintain the fund’s portfolio.
Mattia Bacciardi has been the lead manager of BULIX since May 2025. Three top holdings of BULIX are NextEra Energy (8.7%), Duke Energy (7.9%) and Constellation Energy (6.7%).
BULIX’s 3-year and 5-year annualized returns are 10.3% and 7.8%, respectively. Its net expense ratio is 0.65%. BULIX has a Zacks Mutual Fund Rank #2. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Fidelity Select Utilities FSUTX primarily invests in common stocks of companies engaged in the utilities industry, including domestic and foreign issuers. It relies on fundamental analysis of financial strength, industry position and economic conditions to select holdings and operates as a non-diversified fund.
Pranay Kirpalani has been the lead manager of FSUTX since December 2024. Three top holdings of FSUTX are NextEra Energy (11.7%), Constellation Energy (8.3%) and Duke Energy (8.1%).
FSUTX’s 3-year and 5-year annualized returns are 13.3% and 12.5%, respectively. Its net expense ratio is 0.65%. FSUTX has a Zacks Mutual Fund Rank #1.
Franklin Utilities A1 FKUTX typically invests the majority of its net assets in public utilities and related service providers, focusing on companies delivering electricity, natural gas, water and communications. Part of its assets is concentrated in the utilities industry. It invests mainly in equity securities, primarily common stocks.
John Kohli has been the lead manager of FKUTX since December 1998. Three top holdings of FKUTX are NextEra Energy (8.6%), Entergy (5.6%) and Vistra (5.4%).
FKUTX’s 3-year and 5-year annualized returns are 11.8% and 10.9%, respectively. Its net expense ratio is 0.70%. FKUTX has a Zacks Mutual Fund Rank #1.
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This article originally published on Zacks Investment Research (zacks.com).